Silicon Valley worried after RBI governor quits

Ritu Jha –

Silicon Valley veterans reacted with concern to the abrupt resignation of Urjit Patel, the chairman of the Reserve Bank of India on Dec 10.

While many said they were not surprised, they still expressed worry about the uncertainty generated and said they would be reluctant to invest in India until things gets clearer after the national elections there next year.

Sanjay Subhedar, managing director at Storm Ventures and an early advocate of Prime Minister Narendra Modi’s Startup India program, spoke for the others when he told indica, “This is unexpected. Political leaders just want to win the election, [now] they claim to care about the long term.”

He felt that in the short term the uncertainty could see the rupee getting weaker and the foreign direct investment (FDI) flowing to India slowing down.

He said that the market, already weak, is likely to get weaker after Patel’s resignation, with fears of a slowdown being compounded by worries about rising inflation.

According to Subhedar, Modi’s confidence generated some momentum, and Silicon Valley embraced him, but the investment climate is different today.

“It’s not one thing that concerns investors; it’s a drip, drip, drip of bad news – when you think about non-performing loans and the public sector bank, Gitanjali Diamond [whose chairman Mehul Choksi is absconding] Vijay Mallya [of Kingfisher fame, who fled to London], it all reduces confidence in the system, in regulation, in oversight, monetary policy. People have started staying it is a high risk situation [in India]. I I take a risk I need a bigger return otherwise am not going to invest there.:

He said that Modi appeared weakened and a future coalition government could have trouble creating strong business-friendly policy.

“So whatever investment I have had in India earlier, I have told people I want to get out. Things will not be clear until the election next year,” he said.

“I am not surprised this time though I was very surprised last time when they let Raghuram Rajan go,” he said referring to the earlier RBI chairman who the Indian government ignominiously removed and who teaches at the University of Chicago Booth School of Business.

“Jaitley and Modi are control freaks so this was inevitable. They are in full election mode now,” Rekhi echoed as Subhedar.

“So, I can safely state that it must be long-time in the making and less than amicable,” Mishra told indica.

He too sharing his concern said the financial markets in India obviously showed the jitters and foreign markets and investors are likely to follow suit and speculate on the independence of India’s Central Bank.

“This news combined with the upcoming general elections, I see a bit more of wait and see attitude and hence a little slowdown in foreign direct investments which has been the highest in India under Modi’s administration,” said Mishra.

Reacting to the resignation, Sam Pitroda, a telecom engineer, inventor, entrepreneur and policymaker. said he has known Patel for 30 years and how his mind works.

“No, I was not surprised because it was a headache for him. He is a man of principles. I am sure he must have felt uncomfortable. When a professional gets pushed around too much and their independence is undermined, naturally, they cannot stand that. They have a career and ethics to deal with. So he did what was the right thing to do,” Pitroda told indica.

Pitroda said that in the beginning Patel may have been “a Modi man, and accepted the post seeing it as a lifetime opportunity of serving as the chairman. But he saw they could not compromise. [The pressure] has been adding up. Building a nation is very different from building a company. Building a nation is very complicated.”

He said the resignation may have something to do with “the government’s intent to raid the capital reserves of the RBI… I hope the resignation of the governor is not a sign that this may soon become a reality.”

Pitroda, who is also the chairman of the Overseas Congress Department of the All India Congress Committee and an adviser to Congress chief Rahul Gandhi, made a pitch for his party, speaking for the role played by former prime minister and finance minister Manmohan Singh.

“Manmohan Singh was sincere and honest. He believed in democracy and he let people do things. He gave them freedom. And that is democracy. He was not a dictator.”

Nirvikar Singh, economics professor at University of California Santa Cruz, described the issue as political.

“The problem is with ultra-nationalists in the ruling coalition and how they treat economic experts,” he told indica. “I was not surprised. The exact timing was a bit unexpected.”

He too spoke o the Indian rupee depreciating further.

“Yes, both are already happening and it will continue in the short run at least,’ Singh said.